41–50 of 298 posts
We have gone from a zero interest rate economy to a high interest one within months. Whoever claims to accurately predict what's going to happen in the next few years is talking out of their ass. We know inflation should start decreasing within a year or so, but you cannot predict how millions of people will react to suddenly not being able to afford stuff.
Certainly you can argue that Japan proves an exception to this rule, or that the current low unemployment is simply a lagging indicator of our previously dovish monetary policy that will eventually normalize. But I think that NAIRU simply needs to be refined: wage inflation occurs not during low unemployment but during times of increasing employment. That is to say, an economy may arrive at a steady state of employment at a variety of employment rates, which needn’t cause wage inflation, but when employers in aggregate are creating new jobs and attempting to fill them even if they have to raise compensation, you do get wage inflation. This also doesn’t necessarily need to be done in aggregate: you can argue that wage inflation in the technology industry during the 2010s is partially what created the localized inflation in the Bay Area during that time, while in the rest of the country without heavy tech presence, this didn’t happen.
There are of course many other wrinkles: for example, the size of the workforce has a degree of elasticity, where higher wages or lower hiring standards may draw some people not considering participating to again participate. There is also elasticity to hiring: depending on any individual employer’s demand for workers they may be more or less willing to raise compensation vs only partially meeting hiring goals. And of course there is stickiness to employment on both the employer and employed. The elasticity and stickiness of these things seems like it can have tons of factors that influence their magnitude: from culture norms (like in Japan where job hopping is less common), to employment regulations (how hard is it to hire-fire), ageism and other *isms (if a culture discriminates against X group, they may be more inclined to drop out of the labor force, but happy to rejoin it if employers need to hire so badly that discrimination gets lessened), to the size of the social safety net.
Plus, unemployment is a very coarse metric for skilled workers. Skilled workers are less likely to simply become “unemployed” and more likely to switch directly from one job to the other. During a broad hiring binge you could see large wage growth with little change in unemployment.
Anyway, I think basically economics has the tools to explain everything we are seeing already - it’s only perplexing when reasoning based on very simplified models like NAIRU.
We have gone from a zero interest rate economy to a high interest one within months. Whoever claims to accurately predict what's going to happen in the next few years is talking out of their ass. We know inflation should start decreasing within a year or so, but you cannot predict how millions of people will react to suddenly not being able to afford stuff.
> We know inflation should start decreasing within a year or so, but you cannot predict how millions of people will react to suddenly not being able to afford stuff. If people in aggregate are suddenly unable to "afford" things, then you're not talking about inflation. People (again, in aggregate) have more money (not wealth) than they did a few years ago, which is what "inflation" means. On average, it's a rescaling…
Earlier quoted context omitted.
Considering almost 7m people died from covid officially … Yeah they’re pretty missing https://www.worldometers.info/coronavirus/coronavirus-death-... The Economist puts excess deaths at 20m https://www.economist.com/graphic-detail/coronavirus-excess-...
How many of these dead people were of a working age?
Eventually we’ll run through all the money we dumped into the economy.
You don't really “run through it” since the money is still there (unless the central bank pulls it out). But you are right that eventually the economy would grow enough to “soak up” the extra money and it wouldnt be so inflationary.
Earlier quoted context omitted.
Not only it's not high compared to historical rates but worse I think is that Fed's real interest rate is still in the negative territory: January CPI report headline came at 6.3% YoY and core at 5.3% YoY (it's negative with current rates even if you use the PCE index as a baseline, which is the Fed's favorite index to measure inflation).
seems the consensus is "a little more inflation" is better than "a bigger recession" which is probably true. People are still trying to get on their feet, and inflation is "felt" a lot less than losing your job (and not being able to find a new one for a long time).
Their ability to fight inflation is tied up in market participants believing they will do what it takes to do so even in the face of harsh costs. If that reputation comes into doubt, we could end up with the worst of both worlds.
Earlier quoted context omitted.
I sort of trust the ECB, but I won't be shocked if they miss their targets.
I trust the ECB to miss their targets. It is part of the job description setup. You are trying to control a chaotic system with one knob and you have to follow a manual that gets rewritten with past learnings: a) if the issue reoccurs, the learnings are ineffective b) if the issue is new, how can you tell how to move the knob without pissing a lot of people and losing your job. It is a lose-lose game.
These jobs are of extremely marginal (or even sometimes slightly negative) value to the corporation in terms of profitably servicing customers, but their value in anti-competitive moat-making justifies the costs. Of course, this only works at scale if most big corporations act in unison.
As corporations find other, more effective ways to maintain their oligopolies, the reliance on this strategy diminishes... That may explain recent layoffs in the US? Maybe we've reached such point due to media monopolization and regulatory capture providing a more robust moat? The ability of free labor to compete against corporate interests is now so insignificant (odds are so bad for indie startups) that it no longer poses a threat to corporate interests, even in large numbers.
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I'm sorry but I'm not entirely sure who or what you are responding to with this. Could you explain a little bit of the context so that we can understand the point that is being made?
Earlier quoted context omitted.
Not only it's not high compared to historical rates but worse I think is that Fed's real interest rate is still in the negative territory: January CPI report headline came at 6.3% YoY and core at 5.3% YoY (it's negative with current rates even if you use the PCE index as a baseline, which is the Fed's favorite index to measure inflation).
seems the consensus is "a little more inflation" is better than "a bigger recession" which is probably true. People are still trying to get on their feet, and inflation is "felt" a lot less than losing your job (and not being able to find a new one for a long time).
As to the soft landing scenario, sure, it might happen but based on what followed past inflation, it seems unlikely (if I'm not mistaken soft landing was only achieved once in the mid 90's and with a much lower inflation than we see now.